TMI Blog2018 (12) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... atistical purpose. Waiver of penal interest and other interests as expenditure u/s 31(1)as per schemes announced by the APCOB and KBCCB - Held that:- The claim of the assessee was in all cases the waiver of interest on over due and sticky loans and the assessee submitted that such interest was never claimed as expenditure in the earlier years. Though there was change in the nomenclature the waiver and written off was interest and stated to be admitted as income in the earlier years. The assessee submitted that there was no double claim made by the assessee. The department did not bring any evidence to show that the assessee has made double claims of the deduction. Since facts of the case are identical to the assessee’s own case in appeal of this tribunal respectfully following the view taken by the coordinate bench of this tribunal we uphold the order of the Ld.CIT(A) and dismiss the appeals of the revenue on this grounds for the A.Ys 2011-12 to 2014-15. - I.T.A.No.301 & 302 /Viz/2017, I.T.A.No.100 & 101 /Viz/2018, CO Nos.70 & 71/Viz/2017 And CO Nos.60 & 61/Viz/2018 - - - Dated:- 28-11-2018 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse upto 31.03.2007 are also covered. In brief, the loans given upto Financial Year (F.Y.) 2006-07 and prior years are eligible under the Debt Waiver Scheme. The AO also observed from clarification provided by the Department of Financial Services dated 18.06.2008, para2(ix)(a) of the implementation circular 1/2008 that the lending institutions shall neither claim from the Central Government nor recover from the former the (i) interest in excess of capital, (ii) unpaid interest (iii) penal interest (iv) Legal charges (v) inspection charges and (vi) Miscellaneous charges and all such charges will be borne by the lending institutions. 3.1 As per para 2(vii) of the cited circular No.1/2008 issued by the Department of Financial Services, loans/ amounts actually or prudently written off by the lending institutions are not eligible under the scheme. Lending institutions shall not charge any interest on the eligible amount after 29.02.2008 subject to certain conditions. 3.2. The Board of the assessee vide resolution dated 23.09.2010 has resolved to grant additional relief for other farmers who repaid 75% of the loan by the loan by the time of the announcement of ADWDRS- 2008. 3.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n should, therefore, be carried till the account s finally settled and after receipt of the Government's contribution under the Scheme, the amount should be reversed to the General Reserves below the line. From the above circular the AO found, that the provision made for loss in Present Value (PV) in terms, in case of eligible amounts receivable from Government of India has to be transferred to the General Reserves below the line. The amounts were also mainly related to the period during which the income of the assessee was deducted as exempt u/s 80P of the Act. The RBI mandates that the loss or expenditure, if any on account of debt waiver or relief should be carried to General Reserves below the line because it is a permanent loss and the assessee did not follow the guidelines of the RBI and charged the expenditure on waiver to P L account which is in violation of the RBI guidelines on the scheme. The AO further observed in the Balance Sheet that the assessee has enough amounts in provision for standard assets, overdue interest and bad and doubtful debts which are maintained by him below the line for writing off the amounts on debt waiver. The assessee argued before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on issued by the AP State Cooperative Bank, it is clear that the assessee has to bear a share in the relief package given to PACS on account of loss incurred due to waiver of interest to small and marginal tanners. Therefore, the expenditure incurred is not strictly in the nature of bad debt Written off but in the nature of expenditure provided u/a37(1) of the Act. Assessee has no other option but to incur the expenditure as per the directive of the Govt. as well as APCOB. In the aforesaid view of the maiter, we hold that the amount of ₹ 3,12,31,869 is allowable as business expenditure. Since the Ld. CIT(A) has already allowed expenditure to the extent of ₹ 2,26,16,355, the balance amount of ₹ 86,15,145/- is directed to be allowed. This ground is allowed 5. Aggrieved by the order of the Ld.CIT(A), the revenue has filed appeal before the Tribunal. During the appeal hearing, the Ld.DR argued that the assessee has not followed the guidelines of the RBI that the loss or expenditure on account of Debt Waiver, the relief should be carried to the General Reserves below the line, because it is a permanent loss. The assessee s claim that the debt waiver is a business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as (i) interest in excess of capital, (ii) unpaid interest (iii) penal interest (iv) Legal charges (v) inspection charges and (vi) Miscellaneous charges and all such charges will borne by the lending institutions. The Board of the assessee also passed resolution dated 23.09.2010 to grant additional relief for other farmers who repaid 75% of the loan by the time of the announcement of ADWDRS-2008. The loss is permanent loss which in not denied by the AO. From the discussion of the AO and the circulars from the Department of Financial Services cited (Supra) it established that the assessee is barred from claiming the loss either from government or from the farmer. Therefore whatever written off is loss but cannot be held as NPA or the standard asset or bad debt. Though the RBI has directed the assessee banking institution to take the loss to the General Reserve it is imperative on assessee to debit the expenditure under Profit Loss account since it is a permanent loss. The Ld.CIT(A) has given a finding that the expenditure is allowable on the ground that the waivers are actual and the written off in the books of the assessee is not disputed and merely because of the RBI guidelin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58,597) * Bank s share 50% on the interest waived on overdue fish feed loans (Rs.1,20,47,905) * DCCB share of 35% of the interest waived under APCOB interest relief scheme (Rs.96,78,169) The assessee has charged the expenditure to P L a/c for the relevant A.Ys. The details of the aggregate expenditure charged by the assessee for the A.Y. 2011-12 to 2014 -15 under the same heads are as under: Assessment Year Amount in Rs . 2011-12 2. 39,84,671/- 2012-13 1,41,69,117/- 2013-14 1,92,43,019/- 2014-15 1,30,51,270/- 10. APCOB has introduced additional waiver scheme to provide relief to the farmers applicable for all DCCBs and the assessee also implemented the scheme. As per the scheme, the farmers who are not covered under the ADWDRS-2008, overdue loan installments are eligible for waiver of penal interest on short term, medium term and long term loans and waiver of interest on overdue loans, long term agricultural loans. Similarly the assessee also extended waiver scheme to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come returned. The assessee had enough provisions of bad and doubtful debts and other reserves to cover the loss on account of waivers and relief schemes. The assessee also did not follow the RBI guidelines on prudential norms on income recognition, asset classification and provisioning and capital adequacy which is important circular to implementation of the scheme. The assessee has violated the RBI mandate, that the loss on expenditure on account of debt waiver relief should be carried to the General Reserve below the line because it is a permanent loss. Accordingly, the Ld.DR argued that since the assessee has not followed the RBI guidelines and the assessee had sufficient reserves and NPA, the addition made by the AO required to be upheld and the order of the Ld.CIT(A) to be set aside. 13. Per contra, the Ld.AR argued that the assessee has written off DCCB share of 35%/60% on penal interest on IOD as per APCOB scheme. The APCOB has promulgated the scheme in which interest duly shown as income in the earlier years as P L a/c to be written off. The Ld.AR argued that they are part of profits and gains from banking deposits. There was no amount of waiver that is required to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the expenditure is allowable expenditure taking support from the decision of coordinate bench of ITAT, Hyderabad in Nizamabad District Cooperative Central Bank Vs. ITO in ITA No.905/906 which reads as under : 22. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The assessee has waived the interest on short term and long term loans given to the farmers. This is evidenced by page no.28 of paper book submitted before us. As per the scheme of waiver 35% of the interest relating to waiver of penal interest and Interest on deposits (IOD) is borne by the assessee. There is no dispute that 35% of the share was borne by the bank relating to IOD and penal interest. This is on repayment of the loans collected along with interest. Waiver of over due interest and the penal interest is an incentive to the borrowers to make them to repay the loan granted by the bank. There is no dispute regarding the genuineness of the waiver. The Ld. A.R. submitted that it is on account of reimbursement given to PACS on complete repayment of loans. The similar issue was considered by the coordinate bench of ITAT, Hyd in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred in the relevant previous year only on fulfilment of the conditions laid out in the scheme of waiver. we enclose a translation of our circular no. ADM/penal interest/ 2005/06 dt.7.3.2006 which postulates that a PACS is entitled to get reimbursement of penal interest and IOD, only on its realisation of the overdue loans from farmers in full with principal and interest. as the said conditions were fulfilled in the relevant previous year, we incurred the expenditure also in the same previous year, debited the same and claimed deduction, which is submitted as appropriate. We submitted that as the expenditure for reimbursement of penal interest HOD was laid out /expended irretrievably during the relevant previous year, the same was claimed as expenditure in the previous year and the said claim is in accordance with the language of Sec. 37( 1). 6. There can't be an insistence for claim of expenditure at a different point of time, because we submit that we were instructed by APCOB to implement a waiver scheme, the expenditure was claimed in the relevant previous year only when we irretrievably spent the amount towards reimbursement of penal interest and IOD , in pursuance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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